Some positive news on trade

The UK Government announced yesterday a new tariff scheme that is set to replace the existing GSP. Known as the Developing Countries Trading Scheme (DCTS), this is set to be effective from next year and do away with the Generalised Scheme of Preferences, a position coveted by many of UKs trade partners.

The DCTS is to apply to 65 countries including Sri Lanka – categorised under those eligible for “Enhanced Framework/Preferences”; offering lower tariffs and simpler rules of origin requirements for exporting to the UK.

This differs from comprehensive preferences, standard preferences and Economic Partnership Agreements, held by other South Asian nations such as Pakistan, Bangladesh and India respectively.

While patronisingly discussed as offering developing countries, one of the “most generous sets of trading preferences” of any country in the world, Sri Lanka can only graciously accept with open arms what it is given. GSP, a policy tool that came with more strings attached than trade benefits which was hard to ignore from a significant trading partner, DCTS is criteria dependent, and aims to address free and fair trade, without politicising the livelihood of merchants and citizens of a State.

In four quarters to the end of Q1 2022, total trade in goods and services between the UK and Sri Lanka was 1.1 billion pounds. Total UK imports from Sri Lanka amounted to 779 million pounds while UK exports to Sri Lanka amounted to 290 million pounds, making it a significant trade partner.

This new scheme is a means of a testing scale as countries can develop from DCTS Enhanced Preferences and move to DCTS Standard Preferences when their economies are no longer classified as economically vulnerable.

Only last Friday, the Central Bank announced that the compulsory requirement to convert service export earnings has been removed, lauded as a move in the right direction to do away with the chokehold regulation that deterred foreign currency earned funds from being transferred into the country. Ironically, this was first introduced in a last-ditch attempt to increase forex reserves, at the expense of export earners.

During the first six months of the year 2022, $ 1,533 million have been received as service export earnings from which 26% has been converted to rupees, according to a bank report. CBSL said the service exporters may use their export proceeds for repatriation to Sri Lanka for permitted purposes. The mandatory requirement to receive proceeds of service exports to the country within 180 days from the date of provision of services remains unchanged.

Similar to the ban on the Hawala and Undiyal currency conversion systems being actively discouraged, the unofficial money exchange, this act of mandatory conversion, which was initiated with good economic intention, ultimately creates worse issues, arguably worse than the problem it was set to solve.

In the case of the money conversion ban, due to the inadequate amount of foreign funds, there was an opportunity for an imported food crisis to crop up. Likewise, the mandatory requirement to convert made export earners actively delay or completely put off repatriation of those funds in the fear that it would even be forcefully seized by regulatory authorities. 

In fairness, mandatory conversion is not the same as forcibly taking away, although it is on the same side of the spectrum of actions. No matter how devastating a situation, the desperation of a State can be truly felt in such instances with the precedent it sets being so harsh and blind to the freedoms and rights of the people. Even if it is justified in the immediate now, the long-term damages cannot be easily undone.